Diluted Earnings per Share-Convertible Bonds
Delgado Manufacturing Company reports long-term liabilities and stockholders' equity balances at December 31, 2008, as follows:
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Convertible 5% bonds (par)
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$ 800,000
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Common stock, $25 par, 100,000 shares issued and outstanding
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2,500,000
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Additional information is determined as follows:
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Conversion term of bonds-50 shares for each $1,000 bond
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Income before extraordinary items-2008
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$ 199,800
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Extraordinary gain (net of tax)
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43,520
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Net income-2008
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$ 243,320
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Compute the basic and diluted EPS for the company for 2008, assuming that the income tax rate is 30%. No changes occurred in the debt and equity balances during 2008.